Core operating income amounted to 992 million Swiss francs, an increase of 17% or 135 million Swiss francs at CER. The weakening of the Swiss franc against the major currencies affecting Actelion’s performance had a positive impact of 43 million Swiss francs on core operating income.
The increase in core and US GAAP EPS was driven by higher net income and the decrease in number of common shares. The average share count for diluted EPS decreased by 4.7 million shares as the average number of dilutive instruments decreased by 1.0 million shares despite an increase in the average share price (158.02 Swiss francs per share during 2016 compared to 126.96 Swiss francs during 2015).
Actelion’s excellent commercial performance during 2016 was driven by the outstanding Uptravi launch in the US and Opsumit’s sustained strong growth trajectory. During the fourth quarter of 2016, combined sales of the company’s outcome-based PAH portfolio, Opsumit, Uptravi and Veletri, reached 55% of total sales, demonstrating the significant progress made in the fundamental transformation of the PAH business.
In the US, sales increased by 25% at CER, driven by the strong Uptravi launch, the continued Opsumit momentum resulting in share gains in an expanding ERA market. European sales were 1% higher compared to 2015. A strong Opsumit performance and solid Tracleer use in the digital ulcer indication was impacted by continued pricing pressure and market erosion from bosentan generics, particularly in Spain. Sales in Japan increased by 19% at CER, mostly driven by very strong sales of Opsumit (launched in June 2015), the Tracleer momentum in digital ulcer indication and Zavesca (Japanese trade name Brazaves).
Comparing average exchange rates for 2016 to 2015, the Swiss franc weakened, mostly against the US dollar, euro and Japanese yen, resulting in a positive currency variance of 63 million Swiss francs.
Core cost of sales for 2016 increased by 17% at CER to 209 million Swiss francs. Royalty expenses on sales for 2016 were 7% lower compared to 2015 at CER. This decrease was mainly due to ceased royalty obligations, following the patent expiry of Tracleer in the US (late November 2015) and Ventavis (mid-March 2015) and a favorable product mix with a low single-digit royalty rate paid on Opsumit sales compared to a high single-digit rate paid on Tracleer sales in markets where Tracleer is still under patent protection. This decrease was partially offset by mid-teen royalty payments to Nippon Shinyaku related to Uptravi sales outside of Japan. Royalty expenses on profit sharing relate to the collaboration with Nippon Shinyaku for the commercialization of Opsumit in Japan and amounted to 20 million Swiss francs for 2016 as Opsumit sales in Japan increased strongly. Cost of goods sold increased by 31% in 2016. The increase was driven by higher sales along with a different product mix and some one-off Uptravi launch inventory write-offs.
The excellent commercial performance enabled Actelion to advance both the late and earlier stage pipeline resulting in increased R&D expenditure which translates into a ratio of R&D core operating expenses to sales of 21%, slightly higher than in 2015. Core R&D expenses amounted to 509 million Swiss francs, an increase of 25% at CER. This increase was driven by higher clinical trial expenses, mainly driven by the strong recruitment in the Phase III OPTIMUM study (ponesimod in multiple sclerosis announced in April 2015) and the Phase III IMPACT study (Cadazolid in Clostridium difficile associated diarrhea), as well as costs related to the preparation and initiation for Phase II studies for DORA in insomnia and Actelion’s new endothelin receptor antagonist in specialty cardiovascular disorders.
Core marketing, selling and distribution expenses amounted to 501 million Swiss francs, an increase of 7% at CER. This increase was driven mostly by costs relating to launch activities of Uptravi in the United States, Germany and other geographies. Additionally, the company continued the roll-out of Opsumit and Veletri in various markets around the globe. G&A expenses increased by 6% to 202 million Swiss francs as the company expanded its global footprint.